Will Davis of small business lender Able Lending talks about the backer concept and why it is such a positive differentiator.

There are not many companies in online lending that are doing something truly unique but I think we can put Able Lending into this category. While they offer small business term loans they have a unique twist that can lower the cost of lending for the borrower. They invite their borrowers to raise a portion of their loan from friends and family – these people are called backers.

Will Davis is the CEO and co-founder of Able Lending and he is our next guest on the Lend Academy Podcast. He and his co-founder, Evan Baehr, thought long and hard about what could make the online lending process better for small business owners and so the backed loan was born. We go in depth into this concept and discuss the benefits for the borrowers as well as the investors.

In this podcast you will learn:

Will’s background and how it led to the founding of Able Lending.

Why they felt strongly about the importance of sharing risk.

How they have implemented this concept of sharing risk.

An actual example of how small business borrowers can get a lower rate by adding loan backers.

The average number of backers on each loan.

The kinds of small businesses coming to Able Lending.

The channels they use to attract new borrowers.

Why backers are the key to helping with referrals.

The scale they are at today as far as loan volume goes.

How the backer model impacts delinquencies and defaults.

The outside investors working with Able Lending today.

What happened with Will’s co-founder Evan Baehr who recently left the company.

Peter Renton: Today on the show, I am delighted to welcome Will Davis. He is the CEO and Co-Founder of Able Lending. Now Able Lending is an online small business lender, they’ve been around for a couple of years, but they have a very unique twist on the small business lending concept. They introduced the idea of backers so a borrower obtaining a loan can get a lower rate when they have other people actually contributing into the loan. So it’s something that is unique, it’s working well for them so far, and I wanted to get Will on the show to talk about this. We actually go in depth into the concept that he’s trying to do here and we also talk about what that means as far as cost of capital, as far as delinquencies and that kind of thing. We also talk about how he’s doing as far as their scale, who the investors that are actually coming on to the platform and much more. I hope you enjoy the show!

Welcome to the podcast, Will.

Will Davis: Thanks for having me, Peter.

Peter: Okay, so let’s get started by giving everybody a bit of background about yourself and what you’ve done over your career, particularly before you started Able Lending.

Will: Yeah, well originally from West Texas and really felt a calling for public service right out of college and I ended up actually working on Capitol Hill as basically the designee of a representative from my district on the House Financial Services Committee so that was an incredible experience. It was from 2005 to 2008 and when we first got there we were talking about how to get people into homes with no money down, etc. and when I left we were experiencing a major meltdown in the housing market so it was certainly eye opening to see ‘how the sausage was made’ and really turned me on to fixing problems in society from the outside in.

What I mean by that is that I went to Washington, sort of classic Mr. Smith goes to Washington, bright-eyed, bushy tailed, thought I was going to change the world and I found that Congress and government as a whole was fairly reactionary to events outside of Washington and the way to actually to make a difference in society was to go do something outside of the beltway. So that desire led me to go to business school which I went to Harvard Business School, surprisingly I got in, and after business school started a fairly crazy startup that was designed to disrupt the postal service.

And you say, well how did you get from postal service startup to Able Lending. It’s been a long windy path, but I think the roots of that are within my experience in the Financial Services Committee on the House side of things because that was the first time that I had ever heard of peer to peer lending, for instance. There was a Congressional Research Office Report on peer to peer lending and I remember reading that in 2006 and thinking, wow, this is a really disruptive way of thinking through things, never thought in a million years that I would end up doing a peer to peer type startup just six years later.

Peter: Right, right, that’s fascinating and I actually remember your Outbox company that I actually looked into using myself at the time when I had left to go back to Australia for an extended time.

Will: Yeah, you were one of the two people that looked into it.

Peter: (laughs) Right, okay so then you decide to move on from disrupting the post office to disrupting small business finance. So could you just tell us a little bit about the founding story of Able Lending and how you kind of came up with the idea in the early days?

Will: Yeah, early days…go back about two years and we were looking at the small business lending market, but really fintech in general and so it was a little bit broader than that. We were looking at like Uber and Lyft and Airbnb and these very disruptive business models that had sort of upended their specific industry and at the time Lending Club was doing really well. I still consider them a leader in this marketplace, but at the same time Airbnb, for instance, is having more hotel stays per night than Marriott, right? So there was this kind of nagging question in my mind of thinking, well, if someone had disrupted the lending business like Airbnb disrupted the hotel business, then Lending Club should be bigger than JP Morgan and why is it not?

What we really focused on was the nature of what was being shared. So when you think about what is being shared with Lyft or with Airbnb, they’re sharing the highest cost component of their better service and with Lending Club, they’re sharing their capital, but oddly, when you share capital amongst peers and that’s the only thing that you share, the actual cost of that capital is higher than you get from institutional investors like large pension funds and endowments, etc. who have billions to go work with and are looking for 4.5%, 5% return while you know, the long tail of retail investors are searching for 8% or 9% return and then that plays out in other peer to peer startups where they actually get the majority of their money not from peers but from institutions.

So we kind of noodled around with that and thought well, what if sort of the wrong thing is being shared and that’s where we landed on the concept of sharing risk. Ironically, the only way that you can share risk in finance is to share some type of capital, but our capital is geared to getting actually the least amount of peer backer support into each loan and the main thing that we’re solving there is the calculation of the risk because whenever you think about the cost of a loan at scale, the cost of capital is all the same and what you’re differentiated by is how you price risk.

So that’s what we’re sharing in the Able concept is we’re actually sharing the risk with backers and so friends and family come into each one of our loans and they take a subordinated position allowing our senior lender to essentially get paid back on a quicker amortization schedule. In turn, that senior lender, because the risk is being shared, can offer a lower cost of capital and also experience a lower loss given default at any point of default and that’s before you even start to imagine the sort of social peer pressure effect of having backers into a loan.

Peter: Right.

Will: And so because of that, we’re able to source lower cost of capital and therefore drive the cost down to our end user. Without getting into the details of each specific cost of capital that we have with each specific deal, we do know that on average as we compare our rates with other lenders, we generally save somebody about $30,000 over the course of their loan in interest payments alone because we’re able to offer that lower rate.

Peter: Okay, I want to dig into that a little bit because it’s a unique approach, it is not what many other companies or any other companies really are doing in the small business space at least. Let’s start with an example…or maybe you can just give us a real world example of someone who comes along and they apply for a loan and you give them a rate. So what is that rate, what is a typical loan amount and then what is the process for them to go out and try and reduce their rate. Can you just talk us through an example?

Will: So let’s just go through a typical example of a $100,000 loan that somebody is applying for. We’ll upload their bank statements, we’ll upload their QuickBooks automatically; it’s a very simple process. We run it through not only our risk model, but we actually put human expert underwriters on each application and let’s say that they’re approved for a loan.

Well this particular business would get a range of options. We actually have a very dynamic way of introducing a loan to somebody and so let’s say they had a fairly good debt service coverage ratio, just above one, just call it, okay. Typically, they’ll get an offer from us that requires no backers and so that rate may be a 17% rate with no backers. What they can do is they can dial up the backer percent and they can say what if I raise 10% of this loan so $10,000 and Able brings in $90,000. All of a sudden your rate goes from 17% to 14.5% just automatically and they see the cost savings side by side.

Now they don’t have to take that, but if they want to take that they can and usually cost sensitive entrepreneurs are looking for the lowest and cheapest cost of capital. What that backer percent also does is that also opens the aperture so to speak, of the loan, meaning that we can offer that loan at a longer term. As you know, a longer term is actually more meaningful sometimes for the cash flow, the near term cash flow of a company and so whereas the $100,000 no-backer loan would be at a 30 month term, the 10% backer loan at 14.5% could be a 36 month loan. So you can see that that becomes very, very powerful and so when we make an offer to somebody, we’re able to sit down with them over the phone so to speak, and kind of play around with these different variables and have them choose what they want.

They can dial up that backer percent as high as they want to and they could go all the way up to 50%, 60% backer support because it will only just drive down the cost of their capital and make it more affordable for them. Now that’s a fairly good company. Let’s say a company came in and they were outside of the credit box of all the name brand lenders…well they’re probably outside of our credit box too, but we’re able to offer them a loan, say at 30% backer support, and say, hey, listen, we can’t give you a loan at no backers, but we can offer 70% money to you if you can go raise the other 30%. We can still offer you this loan at 17%, 18% APR which is still affordable, you’re going to have to do a lot more work to get this loan, but the loan that you do get from us is going to be by far the cheapest loan.

We really use that backer percent, that backer support lever to keep our loans within an affordable bandwidth because quite frankly, we don’t think it is sustainable for companies to pay 40%, 50%, 60% APR on money over and over and over again, especially with some of these high interest rate lenders whose business models are predicated on multiple loans being taken out in sequence back-to-back as companies are actually relying on that capital because they get into that trap. So that’s how we’re able to structure our loans.

Peter: Right, okay, so just following up from that, so someone gets let’s say 10% backer support, they’ve got $10,000…do you, I guess a couple of questions. One, are you underwriting the backer, I mean, how do you determine that they haven’t just taken out a $10,000 cash advance on their credit card and say here is my backer.

Will: Great question. Yeah, so the only thing that we do is we confirm the identity and the validity of that person. That person is sent a link, they come on and they follow a link to be invited into that loan and then we ask them for some very basic personal information and then we run through the public databases checks on them to make sure they’re legitimate individuals. So long as they’re legitimate individuals and they are who they say they are in terms of their relation to the person, etc., then that’s the extent of the background checks that we do because we feel that whenever a backer comes in there has to be at least two outside backers to the company.

So when you have not just one person giving a loan, but a second and third person who’s actually backing that loan, it actually becomes exponentially harder to collude with multiple real people to commit loan fraud. I say all the time it’s easier to commit loan fraud against just a normal lender than it is against Able because you don’t just have to come up with one false identity, you have to come up with three false identities to even get through the door with us and that’s even before we do other checks on business bank accounts, etc. So it’s actually very, very hard…it would be very hard to collude. We’ve seen one instance where that’s been attempted, but we sense it out really, really quick.

Peter: Okay, and then so this person has said that I’ve got backing for $10,000, are you helping them with paperwork with that or are you just taking their word for it?

Will: So what happens is those backers come in and they go through the background check which is all automated and then they submit their banking information. We actually pull it from their banking account via ACH and we essentially pull the backer funds at the same time, they clear our account and then our senior lender comes in, we combine that money and push it out into the borrower’s hands.

And then the repayment is such that we, as servicer control all the flows of those monies as they’re coming back to us in monthly payments and then what we do is we divvy out what’s owed to the senior and then to the backers as well. So the backers, while they’re not receiving principal each month, they’re receiving interest payments each month. So if the backer is charging 10% on their money, they’re receiving interest payments on that 10% each month.

Once our senior is paid back then the backer is going to receive an accelerated principal plus interest payment for the latter part of the loan, sometimes that’s the last three months, sometimes it’s the last six, sometimes it’s the last 18 months of the loan. Whatever that is, once the senior is paid back and is out of the loan then the backers receive their full amortized payment.

Peter: Okay, interesting, interesting. So I can see how that..the backers are really putting their money where their mouth is.

Will: They are, absolutely.

Peter: …they actually have to take the money out of their account. Okay, that’s fascinating. So then who are the borrowers that are coming to you? Are they a different kind of mix do you think than who would be going to say a Funding Circle or StreetShares or those sorts of people, who is coming to you guys?

Will: I think honestly, the borrowers are fairly similar of StreetShares, Funding Circle, Bond Street, etc. I think those are all sort of in the range of the type of borrower that come to us. Oftentimes they’re shopping around, they’re looking at us, looking at some other people, but we’re talking about a company that has maybe been around for three years. They may have say a million dollars in revenue, still cannot quite break into that bank loan, that SBA loan yet nor do they have the time to do that and so they’re actually looking for either equity or debt capital.

Usually at this time, it’s beginning to make more sense to have debt capital than equity capital especially for the types of businesses that we’re working with where there’s not necessarily going to be a liquidity event in the future, but there are nice cash flows that can be seen being spun off in this company and they’re growing and so we oftentimes…you know, are underwriting for purchase orders and underwriting the whole business taking into account not only their growth to date, but also their future growth and what they can prove to us.

So what’s nice about the Able loan is that through the backer model we can offer very, very cheap cost of capital not just to meet a purchase order, but also to allow for hiring before the fact, allow for some marketing that needs to be done and allow for maybe a build out or something of a shop where they can’t get bank financing. So those are sort of the type…the phenotype of the company is somebody that’s growing rapidly, but still has not been able to break into the banks, so to speak.

Peter: Got it, so how are you finding these borrowers? What’s your marketing strategy?

Will: Yeah, well that’s I think the million dollar question for every alternative lender.

Peter: (laughs) Literally it is.

Will: Yeah, exactly, and so we decided early on we wanted to do best practices in everything. We want to be best practice in our risk-based pricing model, best practice in our legal structure, best practice in our servicing, in our product, every single thing and that filters down into cost of acquisition. So when you look at our acquisition spend, we’re spending money on direct mail, we’re spending money on digital demand, we’re spending money on creating our own list from databases on telemarketing and e-mail marketing, but I think what’s fascinating about the Able model is it really does come back to the backers and you say well, how is that possible?

Well in each loan that we do, we have a one-to-many relationship and so every other alternative lender in the world has a one-to-one relationship right now where they have a relationship with their borrower and no one else is associated with that loan on a sort of personal basis. With us, we’re averaging a one-to-four relationship and so we have this one-to-many relationship where we’re not just interacting with the borrower, but we’re also interacting with their backers. And every single month that backer gets a payment notification and they see that their return is on average actually a lot higher than many other investment opportunities that they have.

So while there are a lot of family members that are involved here, etc. that are not necessarily investing in second and third businesses, there is a very large percent of our backers that are active investors in other businesses in their community. So that one-to-many relationship is something that…while we’re doing best practices on all other aspects, we’re very, very focused on building what we call the “Able Network” and that network is comprised of borrowers and backers who are actively building, but also seeking great entrepreneurs to invest in.

And so we’ve seen backers that have become second and third time backers that actually bring loans in; we’ve actually seen backers that have their own companies that have become borrowers and borrowers that have become backers. So we see a nice sort of cross pollination of these two types of people and I think as we continue to grow our loan book and grow that network, we’re going to start to see a flywheel effect as we just get larger and it’s just going to take time.

Peter: Right, right. So what percentage of your loan book to date have backers…at least one or at least two backers, I guess that’s the minimum, so what percentage of that?

Will: About 85%.

Peter: Oh wow, so it really is…most people are doing the backer thing. Fascinating, fascinating. What about…like you’ve been in business I think for a couple of years now or maybe a bit more than that, can you give us some idea of the scale of your business today?

Will: Yeah, yeah, so we’re lending in 42 states, we’re seeking our lending license very soon in California, so that’s the only major state that we’re not in so we’re a nationwide lender. In the first year and this is kind of interesting, you go back, you look at the beginning stages of alternative lenders, especially the ones that have a very unique business model like even Lending Club way back in the day. They did you know, in the single digit millions in their first year, in the $20 to $30 million range in their second year and $70 to $100 million in their third year. We’re actually tracking very well so we did something like a little over $3 million during our first 12 months, about $30 million in our second 12 months and we should do somewhere around $100 million in our third 12 months or our third year of operations.

I think that actually tracks really well with very novel concepts, especially new concepts like the Able model and so, I think that’s just interesting from a historical perspective, but it’s also interesting to say, are we building a sustainable business here? And we’re very, very close to profitability and we’ve been laser focused on that over the last six months of basically being able to control our own destiny once we’ve hit that scale of profitability. And then there’s certain intrinsic attributes of this model that make us better so for instance, if we can get to a volume where we’re profitable then we have two things that separate us in the marketplace.

As we continue to grow our cost of capital is going to continue to come down, however, while we’ll be at parity with perhaps the cost of capital, we’ll always be able to charge less and therefore have a pricing advantage in the market. The second thing is we’ll always, because we have the one-to-many relationship, we will always have a cost advantage on the acquisition front. So here you’re building a business where you have a pricing advantage and a cost advantage that’s inherent into what the model is itself. I think that’s very, very powerful if you can pull it off. I always say to people we are six months away from great success or great failure.

Peter: (laughs)

Will: …and we’ve been that way for two years now and so I think it’s about keep fighting, keep building, keep growing, do everything you can until you hit that event horizon to sort of get out of the atmosphere of a startup land.

Peter: Right, so just on that profitability I’ve got a couple of questions. Before I do that, how are you seeing default rates trend or delinquencies? I mean, you’ve got 85% of your loan book with backers, is there a big difference between that 85 and a 15 or can you give us some stats?

Will: Yeah, so I’ll just speak to across our loan book right now. Without going to details, we have three companies, for instance, that have gone under and have paid us back in full. The reason they paid us back is because they said, we do not want to default on our friends and family and so even though that’s not empirically enough evidence to prove that the model is working, it’s a very strong anecdotal evidence. We obviously have people that have been slightly delinquent on our loans, but only three borrowers have ever been over 30 days delinquent and all of those have been worked out.

Again, it’s that backer concept and so what’s fascinating about this is that even though we’re young and even though we’re small and we haven’t had a credit cycle, etc., etc. we are seeing from the frontlines of this really powerful evidence that this works and so as we continue to scale and as our loan book matures and it’s seasoning, we’re going to be able to attract and demand a lower cost of capital that will only amplify our competitiveness in the marketplace in terms of how we price our loans.

Peter: Right, right, let’s talk about that cost of capital for a second and the other side of the equation. You know, I was actually having lunch with Jacob Haar a couple of weeks ago and your name came up and I know you guys just signed I think it was a $100 million deal with them. Can you just talk a little bit about that deal and how that came to fruition?

Will: Yeah, well, I won’t get into specific deal terms like cost of capital. What I will say is that if you’re an alternative lender in this marketplace, there’s no better partner than Jacob and his team at CIM. They one, I think, are the most experienced investors in this space and as a result of that they make you better. So we’ve been talking to Jacob and his team off and on just touching base and catching up for over a year and just communicating our progress, how we’re doing, etc. and then it really got interesting in May of this year where we started seeing some major growth in our originations at the beginning of the year and then in May, June and July that just continued to happen.

That’s where we got into some real discussions with Jacob and his team and I tell you, raising equity money is one thing, raising debt money is a whole other animal. So they came down to Austin and spent several days with us. You know, I think we spent well over a month just in due diligence, but then they were actually very, very quick to close, meaning they’re efficient; once they make a decision, they can close really, really quickly.

That was just a huge inflection point for Able because as you know, at the very beginning you have to use your equity capital to start lending and then if you’ve proven yourself a little bit you’re sometimes, hopefully, able to hit the next hurdle which is getting small outside investors to come and purchase those loans off the balance sheet and to prove out the model again.

The other inflection point is getting a larger facility that allows you just running room. I think the fact that we hit that hurdle was very important for us and our investors to know that we have something that’s a sustainable business model here because we have access to raw material.

Peter: Right, are you currently looking for new investors, how does it work? Are you actually running a marketplace or are you taking this money on to your balance sheet and lending it off? What’s the mechanism on the investor side?

Will: Yeah, so we are an off-balance sheet lender and CIM is purchasing loans off of our balance sheet, but we are actively in discussion with two other alternative lending capital providers right now. Now is that called a marketplace? I tend to shy away from calling that yet a marketplace, it’s more of people that are interested in your product, they’re coming into your store and purchasing it off the shelf so I think that it’s not quite there yet.

Obviously, as we get to scale the goal is to have multiple buyers of loans and then the ultimate goal is to hit the securitization market and really all of these things are intended simply to drive down your cost of capital. So we’re seeing a lot of interest in our product though because of the CIM deal, but also as people continue to look at the model and look at the data that we’re able to provide for them. So I think at our volume, three, four buyers of loans is probably…you’re sort of maxing out what you’re able to offer each of them in terms of deal flow.

Peter: Right.

Will: But as we continue to scale the next logical inflection point, when you’re getting to the hundreds of millions or even billions of dollars per year, then you’re talking about warehouse lines, then you’re talking about securitization, I think that will all come in time.

Peter: Right, right. Okay, we’re almost out of time, but I’ve got a couple more questions here. So your co-founder, Evan Baehr is someone I’ve communicated with over the years and he recently departed the firm which was a surprise to me and I’m sure to many people, can you just tell us what happened there, what’s your relationship like with Evan?

Will: Yeah, well Able was actually the second company that we built. Prior to that we did Outbox as we discussed earlier in the interview, so we have built companies together for the last five years. I think that as we both looked up at the next inflection of Able we were thinking…well, one, were our individual skills lining up with the business and two, our individual passions. I think, you know, Evan is…I call him a generational talent in terms of his ability to network and be connected to the outer world. I think he was looking to do something else and it actually came at a time where it was both really good for him to do that, but also could open up some ability for Able to invest in other people to come in and fill some roles.

So from that perspective, it was actually like a very humble decision by Evan to say…hey listen, not only am I not as passionate as I should be about this, but I actually think that I would be better doing something else and that someone else would be better doing what I’m doing right now. Anytime you can come to that decision in a startup that’s actually a very humble thing to do and it’s actually really powerful for our team to hear something like that and so Evan is still on the board and he’s going to continue to remain on the board.

I still talk to Evan all the time and he’s still a very, very integral part of the business, but I think that too few people do what Evan did which is to say…hey, you know, I’m not just going to hang on just to hang on here if it’s actually better for me and Able for me to do something else…then that’s just a logical next step for us to do so I really applaud him for doing that. I also think, you know, I give credit to our board and the rest of the team for both hearing that, but also giving us time to sort of think through how should we do this.

I think we made the announcement in October, but we had been talking about this for a number of months before that and just having that time and that thoughtful approach, that deliberate approach to making a decision was really, really important. I wish that more startups would do that and more founders quite frankly had the guts to do what Evan did.

Peter: Sure, that makes sense. So what’s next for you guys, I mean, you’re looking to 2017, still trying to scale up, what are your plans for next year?

Will: Yeah, obviously continuing to originate some great loans in the portfolio. I also think that the backer concept is sort of a platform in and of itself and so right now we’re applying for instance terms loans, to that concept. You’ll see us apply different types of products still using the backer concept but in different ways and have loans that have different attributes to it that’ll make it even more attractive capital for individuals. So, obviously that takes flexibility on behalf of the lending capital, but also really creative outlets for our team. I think you’ll see that in the next year and we’ll obviously be on the march to California which will be a really important move for us as well in terms of opening up our lending products into the market of California and hopefully, a fairly large next round of equity capital that gives us more fuel for the fire.

Peter: Alright, well on that note, it’s been fascinating chatting with you, Will, I really appreciate you coming on the show.

Will: Thank you, Peter.

Peter: Okay, see you.

Will: Bye.

Peter: I love the idea of the backed loan concept. That it’s something that you can actually have friends and family come into the loan. It feels like a win for the borrower because they get lower rate, it’s a win for Able because they have more like social insurance, shall we say, on the loan. He talked about those people who paid back the loan even though they went out of business. I imagine that would be very unlikely if in fact they didn’t have the backers in that loan.

So it’s a question of can they scale this? It sounds like they’ve got a lot of the pieces in place and I’m hopeful that something like this…because it really gets to me, it feels like sort of the roots of the industry, the sort of peer to peer kind of roots that we began in. It still appeals to me to this day. I feel like that’s kind of where Able is playing a little bit and it’s something that I certainly wish them all the best in going forward and it will be fascinating to see whether they can actually get this to a large scale.

Anyway on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.

We explore the different investing options for kids and what is available with marketplace lending.

I have two kids, aged 10 and 8, and unlike pretty much every other kid their age, they both take a keen interest in marketplace lending. And this is not just because their dad is heavily involved in the industry but because they both have Lending Club accounts in their own name.

I opened UTMA accounts at Lending Club late last year (more on UTMA accounts below) for both kids and transferred the money that was sitting in their savings account (earning less than 0.1% interest). They have been saving a minimum of $1 a week from their allowance as well as a large portion of any gifts they receive from their grandparents. We track these amounts and then contribute new money to Lending Club 2-3 times a year. Now, my son will often say on allowance day, “Just put it all in Lending Club this week”. My daughter likes to spend her money so she usually just does the minimum.

So, what are the investment options for kids? I have written over 1,000 articles on Lend Academy since 2010 and have never discussed this topic so here goes.

The entire paper is over a hundred pages and covers a lot of ground delving into many of the details of the small business lending landscape. To get some background and understand the goals of the paper we spoke with Brayden McCarthy to learn more.

Brayden stated that there were two goals with the paper. The first one was to lay a foundation for regulatory reform, seeking a balance between protecting borrowers and investors in the small business online lending market while at the same time encouraging the innovation that has already led to broader access to credit for small business owners. He noted that 50-100 years ago was when many of today’s regulations were put in place when there was obviously no concept of online lending so it is certainly time for a new framework.

The second goal was to focus on incumbent banks and how they can partner with this new industry. As Lend Academy has discussed in the past, bank partnerships are a big part of the online lending industry and we predict 2017 will be an even bigger year for partnerships. In the paper they put forward their views on what strategies will differentiate the winners from the losers and they go into some detail on the different kinds of partnerships that are in place today.[Read more…]

After months of speculation the OCC lays out their plans for a new national fintech charter in a paper released today.

The Office of the Comptroller of the Currency (OCC) has been regulating national banks since the time of Abraham Lincoln. The head of the OCC, Thomas Curry, has talked about using the authority of his office to create a special purpose fintech charter. Today, at a speech in Washington DC he laid out his plans.

Along with this speech the OCC released a paper titled, Exploring Special Purpose National Bank Charters for Fintech Companies which is available on their website. It goes into some detail about their plans and what they are trying to achieve with this charter. The OCC has requested public comment until January 15 and I am sure they will be inundated with responses.

This new charter goes beyond just lending platforms, it has quite a broad scope. From the white paper:

A special purpose national bank may limit its activities to fiduciary activities or to any other activities within the business of banking. A special purpose national bank that conducts activities other than fiduciary activities must conduct at least one of the following three core banking functions: receiving deposits, paying checks, or lending money.

How the New Fintech Charter Applies to Marketplace Lending

We reached out to Brian Korn, a partner with Manatt, Phelps & Phillips to give his initial thoughts on the new charter. Here are some of these thoughts: [Read more…]

Real estate platform Sharestates has quickly established themselves as an industry leader in less than two years.

The real estate crowdfunding space is quite competitive today but not many companies, particularly those less than two years old, are making a profit. Sharestates launched in February 2015 and have been profitable now for over a year.

My guest on this edition of the Lend Academy Podcast is Allen Shayanfekr, the CEO and co-founder of Sharestates. He explains how he was able to become profitable so quickly, their market focus, unique deal flow, typical deals and much more.

In this podcast you will learn:

Where the idea for Sharestates came from.

Why the concept of real estate crowdfunding has been around for decades.

The segment of the market where Sharestates focuses.

What makes Sharestates different from other real estate platforms.

Details of their sister company that provides them with unique deal flow.

The number of deals they have closed and their total loan volume.

The typical terms of the loans they offer.

How their loan book has performed.

Who their first institutional investor was.

The split between institutional and accredited individual investors on their platform.

Their primary goal when building their investing side of their marketplace.

Peter Renton: Today on the show, I am delighted to welcome Allen Shayanfker, he is the CEO and Co-Founder of Sharestates. Sharestates are a relatively new real estate platform, they’ve been in business really just for barely two years, but I’ve been hearing their name around a lot so I wanted to get Allen on the show to talk about his company, talk about what makes them different and they certainly are very different, I think, to many of the other real estate platforms out there. We talk about how they source deals, who their investors are, their approach to achieving scale and much more. I hope you enjoy the show!

Welcome to the podcast, Allen.

Allen Shayanfker: Thank you, thank you very much, Peter.

Peter: Okay, why don’t we get started by giving everybody a little bit of background about yourself and how the arc of your career has gone up until the time you started Sharestates.

Allen: Sure, so my family actually came from a foreign background, Persian Iranian Jewish, moved here in 1988, left everything behind for various reasons, primarily religious, moved to the US in 1988 and started from scratch so I grew up in a working class family, mother and father both working, grew up kind of on the other side of the tracks, I guess you could say, started my first job at the age of 14 making $5.15 an hour at a Dunkin’ Donuts/Baskin Robbins and then continued to work (laughs)…yeah, it was a fun time and then continued to work multiple jobs throughout high school, college; everything from a movie theater to the restaurant industry.

Ultimately went to law school, had a couple of internships at various law firms and then over a Shabbat dinner on a Friday night was trying to figure out what I was going to do post graduating law school and whether I was going to start my own firm or a business of some kind and that’s where the idea for Sharestates came about.

Peter: Interesting, interesting. So tell us about that dinner a little bit. What was the conversation that really prompted you to go in this direction?

Allen: So my two partners today, Raymond and Rodney Davoodi have actually been in the real estate industry for about 15 years and back in 2008/2009, they had this concept for what was basically a real estate crowdfunding company, but the regulations weren’t there, the market wasn’t there, real estate in general just wasn’t doing well at that time so they decided to put it off.

Originally, the idea was to start this equity-based crowdfunding platform where they would essentially do their own projects and bring in their close network of friends. One of my partners asked me…if you could buy a piece of a building on your credit card for $1,000 or a couple of thousand dollars and have the benefit of cash flow and rental income, etc. moving forward, would you do that as a way to get involved in the real estate game on kind of a smaller scale?

Of course, my answer was yes, I’ve always grew up wanting to own real estate, just didn’t really know how I was going to get there and know how I was going to finance something like that so I started jumping into the regulation a bit more. This was in 2012/2013, had a couple of dozen interactions with the SEC, New York Attorney General’s Office, figured out all of the compliance and regulatory issues and said…hey, guys, we could actually make this a viable business, but let’s pivot a little bit and instead of doing our own projects, let’s kind of make this a marketplace or matchmaking system where we could provide debt and equity financing to other real estate speculators and developers and that’ll make it more scalable for us. So let’s find investors, let’s find real estate professionals that need financing and kind of put them together rather than just doing our own deals.

Peter: Right, right. On your website it says that our founders have been crowdfunding for over a decade, do you mean that you were starting to crowdfund before Sharestates for your own deals, is that what you mean there?

Allen: Yeah, so real estate crowdfunding is kind of a buzz word now. It really came out of the JOBS Act which President Obama put into effect in 2012, but the core concept of real estate crowdfunding is real estate syndication and that’s been around for decades, if not centuries. So my partners have been arranging debt and equity financing for various clients of theirs over the last 15 years just inherently in their other real estate operation.

So whether it was their title insurance clients, whether it was their own projects, etc., the core concept of bringing together a crowd of people, whether it was 5, 10, 15, 20 or otherwise has been there for a long time. The term crowdfunding is a buzz word now and it’s the process of taking that old school method online and making it more efficient and more cost effective, but it’s been there for as long as I can remember.

Peter: Right, right. Okay, so why don’t you just, for the listeners, describe your company, what part of the market you focus on and how it works?

Allen: Sure, so today Sharestates is primarily a debt-focused platform, we’re mostly on the East Coast, most heavily in the northeast working with one to four family residential fix & flip properties, small to mid-balance commercial properties really all for a short-term bridge product where our loans are going out for 12 to 18-month periods on value add development projects that need some sort of TLC or rehab work and then our borrowers are going to traditional financing sources by banks to take us out.

Peter: Okay, obviously, you’re in a competitive market. I know that there’s dozens, but there is probably I would say five to ten platforms that are really doing well and you guys are one of those five to ten platforms, what would you say differentiates you from your serious competitors?

Allen: So I think our backgrounds and our access to deal flow are pretty much the two biggest factors for us. Most of the other platforms that are out there today that are doing well are being run by people that have a finance or technology background, whereas we came from the other side which is just purely a real estate background. So coming into this business, we knew everything from how to originate a deal, to getting an application, to generating a term sheet, negotiating that term sheet, getting that signed with a deposit, taking it through processing, taking it through preliminary underwriting, taking it through final underwriting and then of course, closing and settling the loan and then post closing.

So we were able to actually build our technology around that and make a pretty fluid and seamless process, whereas I think what some of the other platforms’ experienced was…coming from a technology or finance background they built these beautiful platforms that were aesthetically very pleasing and functionally worked well, but they had to go back and kind of piecemeal, add different things to it to kind of complete that A to Z process and we just kind of had an advantage there. Aside from that, it’s really our general ability to generate deal flow.

So we came into this industry with a book of business, primarily from my partners, Ray and Rodney, who got started doing their own real estate projects and eventually became a service company for speculators and developers, both on the title side as well as the syndication side. So right off the bat, we had access to hundreds of millions of dollars worth of transactions that we could kind of cherry pick and then make available on our platform for both our accredited investors as well as our institutional investors.

Peter: Right, right, I think that’s so critical. I mean deal flow is probably one of the major challenges for all platforms really, whether it’s small business, real estate or consumer. Can you just tell us a little bit about…I know you’ve got this company called The Atlantis Organization which your co-founders are also co-founders of that, can you just tell us maybe a little bit about that and what kind of deals you cherry pick from…I presume that’s what you’re talking about as far as where these deals are coming from…how you’re able to cherry pick?

Allen: Sure, so Ray and Rodney actually started The Atlantis Organization back in 2005. Prior to that they were developers and speculators just like anybody else, doing fix & flips, some ground up condo construction, some small multi-family buy and holds, that sort of stuff and in 2005 when they started their title insurance company, they pretty much put everything they had into it.

For those that aren’t familiar with title insurance, it’s probably one of the most difficult businesses to scale and grow because everybody, and I really mean everybody, has a relationship. So you’ve got an uncle, a friend, a colleague, somebody that’s in the title insurance world and those people drive business to the title insurance companies. So really at the end of the day, for somebody to be able to scale that business, it’s all about what auxiliary services can you provide, how can you go above and beyond just providing a title insurance policy so they branded themselves as a suite of real estate solutions and they called that The Atlantis Organization so it meant providing brokerage services, providing networking events and connecting clients to one another.

Sometimes they’d have a client who sold an asset and had some capital to place and another client that was looking for financing and they would connect these guys without really monetizing it, but more so for business development. Ultimately, it allowed them to capture a pretty large marketshare and because of the way they grew their business, about 50% to 60% of their client base ended up being speculator and developer businesses who are the very people that need the type of financing that Sharestates provides today.

Peter: Right.

Allen: So because we have that pipeline we could then go in and we were able to see what the appetite from the investor community was…are you looking for one to four family residential, are you looking for mixed use, are you looking for commercial or retail and we could then approach existing clients of ours and say…hey, guys, you’ve been dealing with us for over a decade, you love our service, you love everything that we do for you, well now we can also provide this additional service which is to provide you with your short term financing.

Peter: Got it, no that makes perfect sense. Are you saying that the bulk of your deals today are coming through Atlantis?

Allen: Originally when we launched the platform, yes, a bulk of our deals were coming through Atlantis. Over the last year in 2016, we’ve made it a pretty heavy focus of ours to actually diversify our deal flow sources to a few different avenues so we have a sales team now…without giving away our trade secret…

Peter: Sure

Allen: …we have very targeted campaigns and plans for how we go about generating deal flow and I think the numbers kind of speak for themselves. Our full launch was in February of 2015 and really over the last year and a half or so, a little over a year and a half, we’ve managed to originate about $200 million worth of volume across almost 300 projects and we’re well on track to probably do more than double that in 2017.

Peter: Okay, that’s quite impressive. Can you just talk about it…you said you’re mainly doing bridging, short term financing, can you give us some idea of the loan term. Are these like 6 months, 12 months, 18 months; what is the range of interest rates you’re offering as well?

Allen: Sure, so the average loan that we issue is on a 12-month term with an option to extend for six months, I’d say the average life cycle of our loans today are probably about nine to ten months and we’ve had maybe 25 loans or so actually take advantage of the extension clause. Our interest rates are typically between 9% and 12%. We’re actually actively working on sourcing cheaper sources of capital so within the next 60 days or so we should be dropping our bottom line interest rate down to 7.5%.

Peter: Okay, so tell us a little bit about then…you wrote your first loan in February 2015, is that correct?

Allen: So we actually had our beta launch in July of 2014 and I think our first actual loan was written in November 2014, but then our full launch was February of 2015 and that’s when we really started to pick up speed.

Peter: Right, so you would have had many loans that have gone through your system now. Can you give us…are all the loans in good standing? I mean, just describe sort of the health of your loan book.

Allen: Sure, so after 300 some odd loans we have done about 50 of them have come full term and been paid off totaling about $80 million plus in return of principal and interest. To date, we have zero loss of principal. We of course have had some loans go past due in which case most of them have been worked out and I think we’ve had a total of about four loans actually move into a default or foreclosure status. We actually had to file foreclosure in I think four instances, two of which were worked out prior to the foreclosure action actually being completed. Those loans ended up being more lucrative between default interest rates, late fees, etc. than had the loan actually performed in ordinary course…

Peter: Right.

Allen: …and the other two are currently ongoing where we have I believe a 40% to 50% loan-to-value ratio so we’re very well collateralized there and we anticipate that those two loans will also work out prior to actually being foreclosed on so we’re in a healthy place.

Peter: So what is the typical loan-to-value then of your deals?

Allen: Across our entire platform, our loan-to-value ratio is about…fluctuates between about 55% to 60%.

Peter: Wow, that’s pretty low. So let’s talk about the other side of the platform, the investor side. Can you just describe who is actually investing in your loans today and you mentioned another deal…I know you’re not going to tell me who or what, but give us an idea of who is doing it today and who you’re focusing on for the future?

Allen: Yeah, so when we first launched our platform our focus was almost entirely on the crowd. We realized pretty early on in that process that the crowd being our accredited investors were ultimately our long term goal, but in order to scale and gain legitimacy and basically a healthy balance sheet that would make sure we’re going to be around for the long term that we would need to diversify with institutional capital as well.

So in May of 2015, we brought on our first institutional investors that was the Ranger Capital Group. They came in on the fractional investment side of our platform which was amazing for us because that allowed us to basically match individual accredited investors and that institution together allowing them to invest in the same deal flow side by side and ultimately issue loans to our borrowers. Since then we’ve gone on to bring on about eight different institutions, some of which we’ve disclosed, some of which we’re under confidentiality agreements and we can’t disclose, but we’ve totaled about $1.25 billion in total capital commitments.

So moving into 2017, we have a ton of funding, it’s just a matter of growing our originations in a scalable and responsible way. We don’t want to sacrifice any of our underwriting criteria and loan criteria in order to just grow for the sake of growing so we are taking a very methodical approach to that. I’d say today about 80% of our overall capital is institutional and 20% is accredited investor crowd and I’d say long term…our goal is always to diversify our capital sources.

Just like any investor wants to diversify their portfolio, we want to make sure that we have a healthy group of investors that we could go to which is going to encompass both accredited investors and various institutions so that we’re never basically left trying to chase capital in any sort of an economic downturn or otherwise.

Peter: Right.

Allen: That’s going to be our focus for the remainder of 2017, and I think as this industry matures and as the institutional world realizes more and more that this is actually a relatively safe product that also provides some form of yield and liquidity, depending on how you actually invest that capital, you know, we can start garnering interest from pension funds and insurance companies, etc.

Peter: That makes sense so it seems like when you go to the homepage of your website, which I’m on right now, it seems like you’re obviously, at least online anyway, you’re focusing on individual investors because you say…invest in real estate with as little as $1,000. That’s clearly an individual investor play so the individual investor, at least from your outreach online, sounds like you’re still very much focused on the individual.

Allen: Yeah so our primary goal and our primary company initiative is to grow the individual accredited investor base. Going back to what I said earlier, we realize that the best way to do that would be to build a very healthy company that people who would know would be around for the long term. So it’s a difference of…as an individual investor do you want to invest in a company that has issued maybe $10 or $20 million in loans, might not have a great balance sheet, you don’t know if they’re going to be around long term, what happens if that company goes belly up, who’s going to service my loan, etc.

Or would you rather invest in a company that’s done a billion dollars in loans and maybe 80% of their capital is coming from institutional partners but you know that they’re profitable, they’re profitable month over month, they have a healthy balance sheet, there’s really no risk of them going belly up and they’re going to be there long term to continue servicing your loans and give you access to new deal flow. So our online initiative, all of our marketing, everything is really targeted around growing our registered user base, that is the individual, and then the institutional side of things is a little bit more manual, you know, that’s more direct outreach.

Peter: Sure.

Allen: We have capital market executives that are actually reaching out to private equity companies, hedge funds, pension funds, insurance companies, etc. and setting up those relationships.

Peter: Right, so I just want to go back to something you just said there, that is you’re saying, profitable on a month by month basis. Is that where you guys are at today? I mean, you started less than two years ago it sounds like, but just tell us a little bit about the status of cash flow positive, profitable, or what have you.

Allen: Yes, definitely. So we actually became profitable in August of 2015. We’ve been profitable month over month with the exception of February 2016 where we had a slightly slower month because we were short on capital commitments from institutional partners. We had a couple of deals that should have gone through by then, but did not so that got pushed back into March/April, but aside from February, we actually have been profitable month over month. We don’t have any debt on the books; we’re still a self-funded company, we actually bootstrapped this with what started as a $25,000 loan in 2014 or 2013, and that grew to about $250,000 loan before we turned a profit in August of 2015.

Peter: Okay, interesting. You mentioned raising money, you haven’t raised any outside equity, but I see that you’re currently raising equity on SeedInvest. Can you just tell us the thought process behind that?

Allen: Yeah, definitely. So we have been self-funded to date. This round that we’re doing through SeedInvest will actually be our first capital raise round, we’re calling it our Series A. Really the primary purpose of that capital raise is to put additional equity capital on our balance sheet to qualify us for essentially warehouse lines or revolving credit lines and ultimately for roughly every $2 to $3 million that we raise in equity capital that’ll qualify us for about $15 million in a revolving line. We can take that revolving line, pre-fund our loans and then make them available on the platform to our crowd or to our institutional partners.

Given that we’re profitable, we could very much just wait and let our balance sheet stack up organically over the next 12 months, but ideally what we’d like to do is really scale our originations and in order for us to do that we need these revolving facilities. So we have a healthy offering at a $35 million pre-money valuation and that capital is essentially just going to go into a reserve account which will qualify us for those revolving lines and that capital won’t really be used for operational purposes.

Peter: Okay, so then you’re not going the VC route at all, you’ve decided to give up that kind of capital or are you going to do that in addition to the SeedInvest?

Allen: I don’t think that we’re going to actually be going the VC route today, that might change in the future, reason for that being that when you go the VC route, at least in our experience and from the conversations we’ve had, two things happen. One, they want to make a sizable investment usually in the ballpark of $10 to $30 million depending on who you’re dealing with and that comes with obviously giving up a larger chunk of the company, but also much of the management. Ultimately, we don’t want to end up in a situation where we have a VC that’s forcing us to grow because VCs are obviously looking for those crazy multiples.

They want to invest in a technology company that they’re going to get a 200 or 300 times multiple on three years from now or four years from now, whatever that might be, and you end up in a position where you’re forced to sacrifice underwriting criteria just to grow loan origination volume or otherwise. We just wanted to maintain control so we figured going with this smaller path which kind of fulfills our immediate need which is to have that equity capital for our revolving lines also gives us the benefit of maintaining control and allowing us to do what we’ve been doing since day one which is methodically grow the company, make sure that we’re retaining control, make sure that the wheels aren’t falling off the bus so to speak, and that we have a healthy operating company that is going to be around for the long term.

Peter: That makes sense, that makes sense. You mentioned your billion plus dollars in commitment so I’m just curious about…what is really constraining your growth? You’ve got this unique deal flow, you’ve got these big investment commitments, are you growing just as fast as you want to and there’s nothing constraining your growth or where do you stand on sort of the marketplace side of the deal flow versus investor?

Allen: That’s actually exactly what it is. There is really nothing constraining our growth at this point. We have access to I’d say comfortably about $500 to $600 million worth of originations annually where we stand currently. We do have the capital backing us up; it’s just a matter of putting the right processes in place and growing the internal infrastructure so that we can support a healthy process moving forward.

We want to make sure that our borrowers have great customer service, our investors have great customer service, that whatever reports or financial reporting that our investors or borrowers might need is prepared in advance and is ready to go. So at this point, what we’ve been doing is just hiring…I guess you could say it’s an HR thing, we just want to make sure that our processing team can handle the load, our underwriting team can handle the load, our investor relations teams can handle the load etc. By example, we’ve gone from…including my co-founders and employees, we’ve gone from five employees in May of 2015 to about 40+ employees including our technology team today.

Peter: Right.

Allen: So we’re growing very quickly and we want to make sure that we constantly have the right people in place.

Peter: Okay, that’s interesting. I’ve got another question around…you mentioned you’ve got a technology team, how are using tech to really scale up your business because obviously you want to make this sort of as least labor intensive as possible. Obviously these deals are somewhat labor intensive just because every deal is unique, but how are you using technology then to really try and become more efficient?

Allen: So the technology piece of our company was more focused on the investor earlier on. Again, going back to what I said earlier, we came into this industry with a book of business of borrowers and what we were lacking this time last year was investor capital, whether it was from the crowd or institutions. So our primary initiative in building our technology earlier on was making sure that our online platform is accessible and working and user friendly for the crowd while also being functional for our institutional investors.

I can confidently say that today, our investor side of the technology is probably 90% to 95% of the way there; it’s never going to be 100% complete because we’re always going to be adding new tools, new functions, new modules like auto invest for the crowd etc., but it’s working very well and that brings efficiencies to the table. So we can take investors’ $1,000 investment, we can market to a crowd and have everything electronically signed, etc. If it wasn’t for that piece, we wouldn’t be dealing with the crowd or it wouldn’t be possible.

Our initiative over the last few months and going into 2017 now is going to be building out the borrower side of the technology so making sure that the loan application, the term sheet generation, the processing and underwriting can be as automated as possible. While I think that one day, maybe a few years from now, the entire borrower function can be automated, we’re not quite there today mainly because the real estate industry in general is just pretty antiquated and certain things just can’t be automated.

For example, certain counties when it comes to things like title insurance or comes to searching the county records, are not in an online database. You have to physically go or there, has to be someone that physically has to go to the county and pull records. In a state like New York where you have ACRIS in New York City, everything is online, you can kind of automate that, but in South Carolina that might not be the case. So as the real estate industry catches up from a technology standpoint, we will keep automating more and more of that. Our goal is maybe sometime by 2020, we could have an almost automated process, but it certainly is going to depend on a lot of moving parts.

Peter: Right, right, understood. Okay, we’re just about out of time, but I want to get the sense of what you’re working on now as you look to 2017, is it geographic expansion, I mean, what are the sort of your big goals for the next 12 months?

Allen: Yeah, I’d say that we have three big goals. Number one is really scaling up our crowd marketing. We’ve done again pretty limited marketing to date so we want to place a heavier emphasis and focus on growing the individual investor base.

We would like to start looking at, as I mentioned before, really automating as much of the borrower side of this business as possible so there’s a huge initiative on the technology side to push out a platform that’ll, from the borrowers’ perspective, be seamlessly automated so they’ll be able to log into the system, submit their applications, get a term sheet, electronically sign that, see a dashboard where they’re going to be able to track the loan processing of their loan, see when appraisals are coming in, see when title insurance abstracts are coming in, credit reports, background checks, etc.

I’d say our third initiative is going to be geographic expansion. Today, we’re in eight states and I’d like to be in at least five to six more new states at some point through 2017.

Peter: Okay, great. Well on that note, I’ll have to let you go. I really appreciate you coming on the podcast today, Allen.

Allen: Awesome. Thank you very much, I appreciate it.

Peter: Okay, see you.

Allen: Take care.

Peter: Today, we live in a very competitive market, whether you’re talking consumer lending, small business lending, real estate. Online real estate is, I think probably the most competitive of all and to me it’s refreshing and quite astounding in some ways to talk with a company that has gone from being founded to really being cash flow positive and profitable in less than 12 months.

I think it’s so important for all companies today, with…VCs are no longer throwing money around like they were a couple of years ago and I know that valuations are down in many industries and for many companies, so having a path to profitability I think is so critical today and I’d like to see more platforms, particularly if you’re a newer platform, really focusing on that because that gives you options. It gives you options to grow the business the way you want and really it allows you to be self-sustaining which I think there’s a lot of companies in this industry that would love to be there right now.

Anyway on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.

PeerIQ and TransUnion plan to develop a suite of data transparency solutions for the online lending industry.

Today, PeerIQ announced a partnership with information solutions provider TransUnion. PeerIQ is known for its data and analytics capabilities in the marketplace lending industry with a focus on securitizations. The goal with the new partnership is to provide transparency to the online lending industry through a suite of products and TransUnion’s access to originator data will play a big role in that. We spoke to PeerIQ CEO Ram Ahluwalia who said the partnership has been in the works for nearly a year.

According to the press release, they will be building an authoritative data and derived analytics solutions for the industry. While we will have to wait and see exactly what the new products entail it is not difficult to guess where this might be going. All the major credit bureaus receive data from lenders of all kinds including marketplace lenders. With this partnership PeerIQ is likely to have access to this data at least in aggregate form. They will be able to build all kinds of interesting products on top of this TransUnion data.

According to Ram Ahluwalia, CEO of PeerIQ:

Our partnership with TransUnion is a significant milestone for us, and together we intend to tackle the industry’s major challenges. Our clients are demanding through-cycle data histories, robust models and indices, cross asset-class comparisons and consensus valuation. We’re eager to meet those needs by uniting with the best data partner in the space.

To get a better idea of what this partnership means for PeerIQ and TransUnion, PeerIQ provided additional details about the partnership and why it is important.

What does this mean for the PeerIQ?

We’ve built powerful analytical tools that our clients use to quickly understand and represent their credit risk, but ultimately such tools depend on the quality and scope of the underlying data. Today, our platform offers insight into over $35B in loans across all major fintech lenders. Our TransUnion partnership affords a step-function change to that data advantage.

For the industry?

The industry needs standardization and transparency to unlock new pools of capital. There is significant variation on data representations. There are no consensus valuation, benchmarks, or loss estimates informed with pre-crisis data. These and other challenges add tremendous friction to the system. With TransUnion’s support, we are tackling these issues head on and introducing products that will reduce these frictions, increase investor confidence, and ultimately improve capital access.

When can we expect new product launches?

TransUnion has been a great partner, and we’re working steadfastly to get our first set of new products to market in early 2017. Stay tuned.

Conclusion

It’s important to remember that the success of the online lending industry is not reliant solely on the originators. The third party service providers like PeerIQ, TransUnion and others play a critical role in reducing frictions to investing. Investor confidence is crucial to a marketplace lending platform’s success and this partnership will help investors gain more transparency into the loans they are buying and bring new capabilities to the industry as a whole.

The short survey will only take two minutes and will provide Lend Academy with valuable feedback

It has been several years since we have done a reader survey here at Lend Academy and a lot has changed. We are about to make some enhancements to Lend Academy for 2017 but before we do that we want to take the pulse of our readership.

This is only a short survey so please spend just a couple of minutes of your time giving us feedback. You can take the survey here.

A new third party tool provides investors with a rich set of features for Lending Club's secondary market.

A new company called Croudify recently announced that their secondary market platform for Lending Club was launching in beta. The company describes itself as a secondary trading platform that allows you to find the best listed notes based on analytical models that they have built. I spoke with Abhishek Agarwal, Croudify CEO, to learn more about the product and also signed up for a beta account myself.

What made Croudify’s platform possible was the creation of Lending Club’s secondary market API last year. In fact, Croudify was the company that worked closely with Lending Club as they were developing the secondary market. Abhishek stated that after beginning work on their product in 2015 they eventually compelled Lending Club to build the API which was eventually made public.

One the key challenges of creating a valuable platform on top of Lending Club’s secondary market is the amount of data that needs to be collected and subsequently the cost associated with collection and storage of the data. This data is used to build Croudify’s pricing models. Croudify currently pulls FOLIOfn data every 5 minutes, which takes the company just one minute to index. According to Abhishek, the infrastructure cost for this is about $8000 per month.

The team at Croudify has an immense amount of experience in data analytics. Abhishek and their Data Scientist, Mauricio Santana both spent 10+ years building data/risk models for Bank of America. The platform, along with the analytical model they have built provides recommendations of notes to purchase on the secondary market, taking into account all data points on the loan as well as aspects such as prepayment and the markup/discount of a note. They hope to eventually provide portfolio automation for both the the primary market and secondary market for both retail and institutional investors.

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About Lend Academy

Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.